Edu-Action: Financial Inclusion in Practice

If doing the right things were as simple as just knowing the right things to do, then everyone would exercise, eat healthy foods, and save money for a rainy day and retirement. But the reality is that human beings are not purely rational actors. Our decisions are governed by a complex range of emotional and practical factors far beyond mere knowledge, including the powerful forces of habit and inertia.

The field of behavioral economics explores how—and why—people structure their financial lives the way they do. MetLife Foundation (MLF) has allocated $200 million over five years (2013–18) to financial inclusion, and we believe that insights from behavioral economics can help us make grants that advance our goal of ensuring that more people can actually realize the financial goals they set for themselves.

The Savings Innovation Learning Cluster, run by our grantee the Corporation for Enterprise Development (CFED), is a good case in point. CFED is working with five community-based organizations, including the United Way of Greater Austin (Texas), to find practical ways to help low- and moderate-income clients save money. As part of a controlled experiment, United Way decided to offer an action-oriented learning session for a group of employees. The agenda was not to lecture employees about the importance of savings but to give them a chance to articulate their own individual savings goals, to open savings accounts on the spot, and to set up automatic payments into those accounts.

Did it work? Half the people who attended the session not only opened savings accounts but took advantage of the automatic-deduction savings option. Significantly, no one who had not attended the session signed up after the fact, even after a matching fund incentive was introduced. In short, United Way solved the right problem: not a lack of awareness about the importance of savings, not a need for financial incentives, but the logistics of getting an account opened and implementing a “set it and forget it” option that worked for low- and moderate-income employees.

Another MLF grantee, the Center for Advanced Hindsight at Duke University, has used behavioral insights to tap into people’s aspirations and desire to belong. The Duke team worked with Reinvestment Partners, a local group that helps low-income people file their taxes and, often, save a portion of their refunds. This year they offered clients the chance to write down their savings goals on a poster. Their photographs were taken showing the goals, and the photos were added to a wall at the tax-prep offices. Other clients saw the wall of photos and wanted to be included too. But they were told that only those who planned to put their refunds into savings could have their photo on the wall. Nearly 30% of people who had not previously expressed a desire to save their refunds decided they wanted to join the wall of planners and saved a part of their tax refunds!

MLF thinks of the trend toward behaviorally inspired interventions as representing a shift from basic formal financial education toward “edu-action”— recognizing that people are possibly more likely to act their way into a new way of thinking than to think their way into a new way of acting. We are excited to continue pursuing this avenue of grant making and sharing what we learn.